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Trinidad and Tobago: Poverty and Unemployment in an Oil-Based Economy

Trinidad and Tobago FY96 PA

Full Report (13.02Mb PDF)

Poverty Profile

During the 1990s, some two decades after the beginning of the prosperous oil boom years in Trinidad and Tobago, per capita income has fallen to its pre-oil boom level while both poverty and unemployment are steadily increasing. The poor comprise approximately 21 percent of the population, with about half of these individuals unable to afford the cost of a minimum food basket. The subgroups among the poor include the unemployed, those with low levels of education, and female-headed households. Poor households are also more likely to be larger, have more children, and have a non-nuclear family structure than non-poor households.

By geographical area, poverty is evenly divided between urban and rural areas, though the severity of poverty is worse in urban areas. In urban areas, as is the case in many other Caribbean countries, the economic pressures of the poor coupled with high youth unemployment, has contributed to growing problems of crime and drug use. The problem is particularly acute among male youth. As crime and violence continue to increase, they will have detrimental effects on the economy and society as a whole.

Incentive and Regulatory Framework

Since the early 1960's Trinidad and Tobago's economy has been characterized by its heavy dependence on the production and export of petroleum and gas. Oil windfalls between 1973 and 1982 brought rises in income, expansion of jobs in the public sector, investments in physical infrastructure, and improvements in living conditions. The investment expenditures during the boom years were heavily dependent on the flow of oil reserves and in sectors that were not sustainable. Public spending and production subsidies increased in areas such as public employment and transfers to alleviate the continued high rates of unemployment attributed to the capital intensive nature of the oil sector. The high wages in the public sector inflated labor costs throughout the economy, undermining competitiveness in the non-oil sector. Only a small number of the jobs created were in the more long-term goods producing sectors.

As international prices declined during the 1980's, the economy experienced a sharp contraction, with an average annual decline of 4.5 percent between 1982 and 1989. Per capita GDP dropped from US$6,600 in 1982 to US$3,700 in 1993 while unemployment nearly doubled from approximately 10 to 20 percent of the labor force. With the economic decline of the 1980s and lack of development in growth areas, the government was no longer able to sustain its high level of expenditures. This led to the retrenchment of some redundant workers, particularly in the public sector, which was inefficiently run. The rising unemployment, decline in the real value of social sector spending, and retrenchment of workers in both the public and private sector have led to an increase in poverty. In addition to the structural problems in the economy, there are administrative interventions that potentially create distortions in the labor market and are not conducive to promoting labor-demanding growth, thus contributing to unemployment.

Overcoming the persistent unemployment that has characterized the economy for several decades will require diversification away from oil/gas to sectors such as agriculture, tourism, and small-scale manufacturing. Promoting growth will also require rebalancing the roles of the public and private sector. To accomplish this development agenda, several priorities have been identified: (i) reinforcing the macroeconomic environment through maintaining macroeconomic stability, insulating the economy from oil price volatility, increasing savings and investment, and promoting a policy agenda for economic diversification and private sector development; (ii) improving infrastructure services by gradually increasing public sector investment in infrastructure, encouraging private sector participation in the provision of infrastructure, and improving project implementation capacity through public sector management reform; and (iii) refocusing the public sector and strengthening its institutional capacity to facilitate economic development. To promote the flexibility and competitiveness needed to foster labor-intensive growth while ensuring adequate standards for the workforce, several aspects of the labor legislation and administrative processes require reform. Other changes, such as creating a new role for the trade unions and promoting efforts to reduce gender discrimination, will also have a positive impact on the functioning of the labor market.

Public Expenditures

Despite the decline in public expenditures over the past decade, health and education expenditures still compare favorable to regional averages — public health expenditures amount to 2.3 percent of GDP and public education expenditures are 4 percent of GDP. As a result of past investments much progress has been achieved as demonstrated by favorable social indicators. There are however, serious problems related to the quality of basic primary education and basic health services. In addition, there are inequities that put the poor at a further disadvantage. In the education sector, international performance indicators reflect low educational standards. Inequities begin at an early age with limited enrollment in preschool by the poor and continue throughout the system with vast differences in quality by school type, and the tracking system at the secondary level. In the health sector, the inequities are less pronounced though major inefficiencies in the system divert important resources from the provision of quality care. Many health facilities in the public sector are poorly- or under-staffed and have inadequate support services. Individuals must wait in long lines, receive prescriptions for drugs that are not always available, and have few options for treatment of prevalent chronic illnesses. In both education and health, the poor cannot afford the private costs of additional important inputs, such as textbooks and medicine, inputs that ultimately have a positive impact on educational achievement and health status.

Safety Net

In addition to basic social services, there are many safety net programs available to the poor, though the potential gain from these programs is tempered. The safety net suffers from the lack of an overall policy framework and lead agency, high administrative costs, and significant duplication and gaps in coverage. The duplication in benefits gained by some provides them with a strong disincentive to leave the welfare system, while the absence of benefits for others leaves them destitute. The largest programs include public assistance, old age pensions, feeding programs, employment programs, community development programs and a range of training, and extension and business development services for the economic rehabilitation of the unemployed. Total expenditures on safety net programs is around 4 percent of GDP, however, because of the decline in GDP, the real value of these transfers has declined. NGOs have been playing an increasingly important role in poverty alleviation in Trinidad and Tobago though there are still deficiencies in effective program implementation by many groups.

Poverty Strategy

For Trinidad and Tobago, the five areas of highest priority for pursuing poverty reduction include: (i) promoting broad-based, sustainable growth in non-oil sectors; (ii) improving the functioning of the labor market by reforming specific administrative interventions to reduce rigidities, distortions and gender discrimination; (iii) improving both quality and equity in the education sector; (iv) rally supporting health reform to reduce current inefficiencies while ensuring quality and maintaining equity; and (v) reforming the safety net so that programs more adequately meet the needs of the poor without wasting resources.

Any programs and policies aimed at reducing poverty and unemployment will require a strong commitment from the government, local communities, NGOs, the private sector, and the international community. The government must take a lead role in implementing a poverty reduction program through ensuring that it maintains a macroeconomic and incentive framework conducive to private sector-led growth, refocuses the role of the public sector, supports the improvement of infrastructure, and supports the reforms in health, education, and the social safety net. The gains in efficiency achieved through reform will ensure the financial sustainability of these improvements.

NGOs, community groups, and individuals will need to participate more actively in poverty reduction efforts as the role of the public sector shifts. This participation can be fostered through information sharing, consultation, and decision making at the local level. International agencies can assist by continuing to work closely with government on implementing their development strategy.

Implementing these policies will require a stronger information base to be able to monitor and evaluate key poverty problems over time and formulate strategies to address them. The shrinking resources provided to the Central Statistical Office has meant both a decline in the amount of information collected, as well as a lag in analyzing information that does exist. Ensuring the collection and analysis of data such as the Survey of Living Conditions on a regular basis, will provide policy makers with an important tool for decision making. This could be achieved through institutionalizing a collaborative effort between agencies such as the Ministry of Planning and the Central Statistical Office.

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